A Quick Background:
Indian Wind Power Industry grew from under 400 MW to over 8750 MW from year 1994-95 to 2007-08. Today with installed capacity of over 9100 MW India is 4th in the global tally of installed capacity. For the last three years India has added on an average 1500-1600 MW year on year. What next?
India’s wind power market is undergoing a paradigm shift from Tax & Captive driven investment to large scale grid connected Independent Power Producer (IPP) Projects supplying electricity to state utilities and hopefully exploiting Open Access going forward. The investment from sectors such as textile, forging, cement, automobile, engineering is making way for large scale investment by Conventional Energy Companies, Asset Developers etc and going forward by Pension funds, Yield Funds through the Independent Power Producer (IPP) route. Historically the Major drivers of wind power investment in India are Accelerated Depreciation, Tax Benefit under Section 80 I (A), Energy Security, High Wind Potential (Estimated at 45000 MW in early 1990s), Government both Central and State Support and last but not least Innovative business model offering One Stop Solution with capability of offering 50 MW to 100 MW Projects in 6(six) to 12(twelve) months capitalizing on extensive preparatory work carried out such as Wind Resource Mapping, Infrastructure Development etc. Benefits can be compared with various incentives which are being provided in different parts of world as Capital Subsidy, Subsidized Debt Facility, Tax Credits, Supportive Infrastructure Development etc. Taking a leaf forward, in the hindsight it can be easily seen that similar kind of benefits were extended at various times towards various other industries apart from Wind Energy both in India and other parts of world.
An important point to be noted with respect to available benefits such as Accelerated depreciation benefit or Tax Credit (PTC in US) is the availability of Taxable Profits by the firm (Balance sheet financing in India) investing in Wind Power or by Tax Equity Investor (US). Firms which do not have tax capacity (new venture, dedicated renewable energy companies, Independent Power Producers, Indian subsidiary of Multinational herein after collectively referred as Independent Power Producer (IPP)) are at disadvantage when it comes to competing with the Balance sheet investor who can obtain additional benefits of Tax saving over and above the revenues offered by Project. In the absence of level playing field, Independent Power Producer (IPP) are facing an uphill task in developing the much “ambitious” but “reasonably achievable” wind power asset portfolio in India. On the other hand, Deep pockets (at least before the financial crisis) and expertise or internal appetite for Renewable Energy, resulting in “long term low cost funding” and “Monetization of Clean Development Mechanism” definitely gives an added advantage to Independent Power Producer (IPP). These aspects definitely help bridging the difference in much talked about absence of level playing field between Traditional Balance Sheet Investor and Independent Power Producer (IPP).
Having said the above, there is one more major difference between Balance Sheet Investor and Independent Power Producer (IPP) and that is “Due Diligence Process” & “technical expectation” from the Project where in I believe today’s Indian WTG Manufacturer (both established and upcoming) will have to gear up.
Developments that can pave the way for Independent Power Producer (IPP) in India:
· Projects with bigger Size & visibility of portfolio development with Manufacturer/developer in the longer term.
· Tariff determination process based on a realistic and comprehensive cost of projects with inbuilt option of escalation.
· Additional Financial Incentive such as Generation Based Incentive (GBI), Renewable Energy Certificates (REC), Tradable Tax Credits (TTC) or any other similar instruments which are linked to actual generation.
· Secure & long term Power Purchase Agreements (PPA) before commissioning of projects.
· Open Access as financially viable mechanism for revenue generation.
· Strengthening of Grid to accommodate wind power of substantial capacity.
· Single Window clearance for all application and clearance required.
· Comprehensive and Uniform Renewable Energy Law.
· Availability of Long term Project Finance.
Suzlon: A Case Study
Being a market leader in India for last 9 years with installed base over 4000 MW as on November 2008, Suzlon foresees a sizeable opportunity for attracting investment from IPPs in India Wind Energy Market. As a proactive measure Suzlon has formed a separate team which caters to needs of the Independent Power Producer with special focus on investment from International Investors. Various aspects where in the team focuses are as below:
1. Environmental and Social Due Diligence: Team provides complete support in terms of necessary documentation, site visit etc required for Environmental and Social Due Diligence, While working closely with Investor and various globally renowned consultants such as ERM, Delhi etc.
2. Wind Farm/ Portfolio offering: Usually the project sizes discussed with Independent Power Producer (IPP) are above 25 MW and can go up to 100 MW in a site or at multiple sites. Typically the modus operandi is to work on a Framework Agreement with visibility of projects for next two to three years to develop portfolio of operating assets at different sites/states.
3. Key Account Management: Key Account Manager (KAM) is assigned for specific Investor who acts as single point contact. KAM coordinates for all aspect of the project be it Wind Resource, Land, Legal, Contractual, Power Evacuation, Power Purchase Agreement, Project, Operation & Maintenance etc.
4. Technical Due Diligence: A detailed product presentation with follow up visit of expert team to one of the integrated manufacturing facility in India (out of approximately 4000 MW plus manufacturing base) and further visit to one of the 50 operating sites in 8 different windy states across the country with over 4000 MW under operation are usually among the various steps during the technical due diligence.
5. Energy Yield Assessment: Energy Yield Assessment for the projects based on long term wind resource data by third party consultant such as Garrad Hassan, IREG, CECL etc depending upon the requirement and comfort. Option of Energy Yield Assessment by in-house experts following international best practices is also a plus point.
6. Legal Due Diligence : Assistance in complete documentation with respect to various laws applicable, land related documents, necessary environmental clearance, necessary approvals from government agencies etc. This assists in smooth decision making process.
7. Power Evacuation and Load Flow Study: Detailed Power Evacuation Scheme study with respect to evacuation infrastructure but not limited to type of equipment used, type of instruments used, evacuation voltages, type of conductor, and detailed in-house load flow study of the area are carried out at pre-offer stage. Independent opinion can be obtained depending up on the requirement.
8. Operation and Maintenance: Detailed operation and Maintenance procedures are prepared and discussed at length to work out the best possible operation and maintenance services contracts on terms and condition mutually agreeable to both the parties.
9. Health, Safety, Security and Environment (HSSE) aspect: Best learning from past experience, HSSE policy of company and HSSE policy of Investor are blended to finalize the best suitable HSSE policy for the project on terms and condition jointly agreeable to both the parties.
10. Corporate Social Responsibility (CSR): A comprehensive Corporate Social Responsibility plan can be worked out jointly with Investor ensuring the overall growth of the geographical area where in the project is developed.
11. New Initiatives :
a. Web Based Monitoring Facility: A prototype web based monitoring facility option has been worked out which will give an option to investor to have comprehensive look at the wind power investment as operating asset. Work is under progress and facility can be provided customized to expectation on terms jointly agreeable to both the parties.
b. Hybrid: Options are being explored to maximize the utilization of assets such as Land and Power Evacuation by exploring option of hybrid such as Solar etc. Further options to convert the in-firm power to firm power using the storage mechanism are also in drawing board stage.
c. Maximization of Revenue from Sale of Power: Team also works on understanding various policy aspects to explore the opportunities which could come going forward such as Third Party Sale, Group Captive Scheme, and Power Trading etc.
Caroline Schoeder rightly said “Some People change when they see the light, others when they feel the heat”. Suzlon being the torchbearer for wind power industry in India has steadfastly decided to be the first one and to augment its core competency in providing Concept to Commissioning Solutions, Gargantuan strength of Manufacturing base of over 4000 MW per Annum and extensive Operation & Maintenance expertise from over 4000 MW operating assets with top-up of “Critical Contemporary Understanding of all techno-commercial aspects” as expected by Independent Power Producer (IPP).
About author:
Satyen Kanabar, Senior Manager, Business Development & Strategic New Initiative, Suzlon Energy Limited, India looks after Independent Power Projects (IPP) in Wind Power in India with Special Focus on International Investment. Further as part of Strategic New Initiative Team explores option of “Maximization of Revenue from Sale of Wind Power through Open Access, Hybrid Solar- Battery Storage etc.
Disclaimer:
Views expressed above are strictly personal of the author and do not belong to organization and are based on publicly available information and are of indicative nature only.
Article got published in international magazine : Energetica India as below:
http://www.energetica21.com/digital/revistas/india02.html#/63/
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